German Retailers fueling the rapid growth of non-GMO soy consumption

How is the largest economy in Europe changing the face of non-GMO soy consumption and what effect does this have on the Brazilian export market?

The primary author of this article is Dr. Ludger Breloh, section chief for sustainable products, including all products from animals reared on GMO-free feed, at REWE Group, the second largest German retailer, with a strong presence also in 11 other European markets. Contributing authors are Jochen Koester (AgroTrace, Geneva), Lucas Alves (MAERSK Line, São Paulo), and Augusto Freire (Cert ID, Porto Alegre).

It was no coincidence when German Minister of Agriculture, Christian Schmidt, while accompanying Chancellor Angela Merkel on her recent trip to Brasília together with half of her cabinet, told Brazilian media that one of the main topics in the German focus for the exchange between the two governments was the continued GMO-free soy production in Brazil. Ever since the beginning of the millennium, Germanys major food retailers have paid close attention to the fact that an increasing number of consumers surveyed annually are turning away from any foodstuff produced from, or with, GMO ingredients.

The REWE Group, along with other supermarket chains, have taken this feedback onboard and started to analyze the situation and begin conversations with their entire supply chain. The final objective for them is to have as many retailer private label animal products as possible fed with GMO-free feed.

This is particularly attractive for brand owners in Germany and other European countries who have national legislation to make a GMO-free claim on consumer products. In Germany, Europes largest economy, VLOG, an industry association, has the exclusive authorization from the Federal Government to issue the rights to use a GMO-free seal to those who are certified accordingly (details in English at www.ohnegentechnik.org/en).

All of this is aided in a major way by legislation and support from the German Federal Government. Officials at Angela Merkels Ministry of Agriculture are also fully aware of the fact that a vast majority of voters prefer GMO-free food. This is the reason why government agencies in Berlin and the majority of the Länder (states) show a keen interest in the continued availability of non-GMO soybean meal from Brazil, because it is exactly that product which is most needed in animal nutrition to ensure GMO-free feeding. Currently, the essential part of the protein needs for German farm animals are met by European feed grains, by-products of grain and oilseed processing plus by basic feed for ruminants. This leaves Germany with a so-called protein gap that is covered by imports of 4.5 million metric tons of soybean meal from overseas. This volume goes into the major farm animal sectors as follows:

Brazil, Argentina and the U.S. are the most important origins of the soy volumes processed in the German compound feed industry. Since the mid-1990s, all three of these countries have seen a rapid increase of the cultivation of genetically modified soybeans. Only Brazil still produces about 10 million MT of GMO-free soy out of its total 90+ million MT cultivated. As far as the REWE Group is concerned, there has been a clear commitment since 2013 to convert the feeding of all farm animals to non-GMO:

- Broilers & laying hens > fully achieved- Turkeys > achieved by the end of 2015- Dairy: Negotiations with all dairy processors include tenders demanding GMO-free products.- Pork: Regarding pigs, as the biggest eaters of soy, negotiations are under way with the important meat suppliers so that, as of 2016, pork can also be labeled as GMO-free using the VLOG seal.

The vast majority of the German retail industry is aware of the supply situation of non-GMO soy and is demanding more GMO-free raw materials for the feeding of its private label products in order to implement this. Retail chains are engaged in a platform for more sustainable protein feedstuffs. On the other hand, the animal feed industry and the general public are mostly not aware of the very high percentage of animal feed that is absorbed by the German retailers production of private labels. In comparison, the market share of industry brands is less important.

In terms of volumes of absorption, MEGA Tierernährung, is Europes largest single buyer of certified Non-GMO soybean meal and is integrated into PHW Group, the continents largest poultry supplier. By the end of 2014, PHW and MEGA had evolved to the point of leading a profound sectorial change in the German poultry industry by strictly converting all areas of the company to GMO-free feeding. This move motivated all competitors  or put them on the spot, respectively.

The REWE Group assumes that, for this reason, during the course of 2016 the entire German poultry production will be converted to Non-GMO feed. The same applies to the area of laying hens.

DMK (Deutsches Milchkontor), at 25 percent market share, is Germanys largest dairy company. They have been closely observing the ongoing moves of the retail industry and the positive feedback this conversion is receiving from the public. The company has therefore decided to emulate the retailer transition and will begin immediately to convert the over 200,000 MT of soybean meal used in feeding the dairy cows in its supply chain to meet the GMO-free criteria (of max. 0.1 percent) as defined by German law. DMK estimates that the conversion will be completed by 2018.

To top off the profound shifts currently going on in the German agriculture, TÖNNIES Holding, Germanys largest pork marketer, has begun to convert the roughly 620,000 MT soybean meal used in its production from GMO-containing material to non-GMO. TÖNNIES has not only observed what the retail industry is doing but has also been urged by several major retailers among its clientele to make the move.

Obviously, of the total German consumption of 4.5 million MT of soybean meal, there is currently a major shift towards non-GMO material. Since the material needed fetches a significant premium over non-declared GMO material. That this development shows no limit is something Brazilian soy exporters cannot ignore. Likewise, competitors of German producers of animal products based in other EU Member States have started to become alert and nervous. Some major pioneers have already made their own switch to a GMO-free production. Many have decided to obtain certification against the German VLOG Standard. They use this marketing advantage to strengthen their market share in Germany  or to conquer new market share in other countries. The advantages of the EUs Single Market concept come in very handy.

Current overall Brazilian export of soybean meal is approximately 16 million MT of which little over 4 million MT meets the strict Non-GMO criteria needed to be used in the production chain for products certified by the VLOG seal. That is already 25 percent of the entire Brazilian soybean meal export volume. As shown above, this volume is in the process of expanding significantly. In other words, this is a segment neither the Brazilian soy industry nor MAPA, the countrys Ministry of Agriculture, can afford to ignore.As well as producers in Brazil and consumers in Europe, a line of service providers also contribute to the supply chain in order to maintain the necessary non-GMO status:

With Brazils tight port terminal situation undergoing a significant expansion, challenging bottleneck scenarios are relaxing, growing volumes of originally all-bulk shipments of soybean meal shipments to Europe add to this. MAERSK Line, the global market leader in container shipping, has had a special program for the shipment of agricultural raw materials already since 2013.

Needless to say, while Brazilian exporters have become the worlds leading specialists in shipping huge bulk volumes in Hard IP quality, the significantly reduced contamination risk when using containers is unbeatable. Depending on the season and destination, container freight rates can be quite competitive with bulk shipments. Especially when looking at the fine-distribution level of smaller volumes to inland destinations, containers are often the only risk-free shipping method.

Whether in bulk or in containers  meal material that is to be used towards consumer products labeled as GMO-free must be identity preserved (IP)  hence the term Hard IP. While certification is not required by law, it is practically inevitable to do without cargo-related Hard IP certification. Only feed ingredients from fully documented IP systems are suitable for a production that Germanys VLOG certification can build on. As a direct consequence of EU regulations combined with national regulations, at least at the first point of entry into the EU, GMO-free certification needs delivery within a documented IP system. The global market leader in non-GMO certification is Porto Alegre-based Cert ID.

It is not only German retailers who like the additional facet offered by Cert ID: Its private consumers have been concerned about the environmental as well as other aspects which fall under the sustainability label. Both ProTerra and RTRS certification are originally based on the Basel Criteria for Responsible Soy Production. However it is only ProTerra-certified material offered on the market which has got the indispensible non-GMO criterion built in.

Mentioned above is the fact that Germany is the biggest economy in Europe. The European Union makes up most of that region and it is a so-called single market. In terms of the trade of goods, borders ceased to exist many years ago. This means that suppliers of animal products in countries such as Denmark or France are just as keen on supplying the major German retailers with poultry or pork as domestic suppliers are. This is the reason why national markets other than those EU Member States that have national GMO-free labeling laws have also been keen on meeting VLOG certification criteria. They want to sell to German retailers. And it works: Since 2014, two of the largest German supermarket chains procure part of their private label poultry from an Italian supplier; others in Germany have followed since.

With all the focus on the German market, it should not be omitted to point out that other markets in the European Economic Area, such as France, Austria, Switzerland, the Scandinavian region, Hungary and Italy, also have a demand for non-GMO soybean meal. Only Austria, France, Luxembourg and parts of Italy have GMO-free labeling regulations but the consumption is there  and growing.The authors of this article hope that the retail industry-driven demand for certified non-GMO soybean meal is something which Brazilian exporters keep their eyes on, and so should crushers and farmers. This target market is here to stay due to an ever-growing consumer demand in Germany and beyond. Brazilian suppliers as well as service providers in South America and in Europe are needed to keep it going and growing.

Dr. Ludger Breloh is the primary author of this article. He was born in 1957 and is an agricultural economist. He became the Head of Strategic Purchase / Green Products for the REWE Group based in Cologne, Germany. In that role he is responsible for the development of more sustainable product lines.  The REWE Group operates in excess of 15,000 supermarkets in 12 European countries.

Lucas Alves has been with MAERSK Line Brazil since 2012. Since its inception in 2013, he has been leading the in-house research of shipping containerized agricultural commodities; he later was responsible for all grain and oilseed customers of MAERSK Line Brazil. He is currently leader of the Cargo Readiness and Documentation team. Lucas earned a degree in Business Administration in the U.S.

Augusto Freire is CEO of Non-GMO certifier Cert ID Brazil, based in Porto Alegre - RS. His career in the Non-GMO sector began in 1999 working in the Brazilian soy industry in the areas of GMO testing and Non-GMO certification for U.S. based Genetic ID. He has been CEO of Cert ID Certificadora since 2003. Since 2005 he has also been responsible for bringing ProTerra sustainability certification to Brazil and to other markets. Under his leadership, Cert ID has become the market leader in Hard IP Non-GMO certification. For years, his responsibilities have involved close interaction with market players in South America, India and Europe.

Jochen Koester is the president of AgroTrace, a Geneva-based company focusing on the distribution of GMO-free agricultural commodities. He is also a charter board member of VLOG, the German industry association of GMO-free food manufacturers and producers. For three years he was the European director of IMCOPA, the Brazilian pioneer crusher in the Non-GMO sector. Around the turn of the century, he introduced the Hard IP Non-GMO concept to the Brazilian soy industry.Until today, Koester has been an advisor to industry, national and supra-national governments as well as to civil society.

This content is provided by Global Grain Events for informational purposes only, and it reflects the market and industry conditions and presenters opinions and affiliations available at the time of the presentation.